Britain

George Osborne's budget

The political post-mortem

UNLESS something goes very wrong in the coming years, George Osborne has delivered the most politically tricky budget he will ever give. The hours between sitting down after his speech yesterday afternoon and reading the press this morning might add up to the toughest day he will endure as chancellor. So why, as he tours the broadcast studios to explain his budget, is he not more despondent? I suspect that he is consoling himself with the following thoughts.

The first is this: the grim headlines were unavoidable from the moment he resolved to deal with the 50p rate of income tax now. That decision guaranteed him a double kicking. The policy itself would be deplored as a baroque, unseemly priority at a time of general austerity. Indeed, I blogged on Tuesday that this was part of his motive for doing it: he needed to pick a fight to send a pro-growth signal.

Once he took the decision to cut 50p, he was also by definition required to raise money to pay both for the policy and for an expensive hike in the tax threshold to keep the Liberal Democrats on side. If he had not taken this from pensioners, which is the gambit that has provoked such damning coverage, he would have had to raise it via some other unpopular mechanism. The outrage has been made worse than it needed to be by his grievous error of concealing the policy while leaking (or allowing his coalition partners to leak) so much else. There is a case to be made for shifting the burden of taxation onto older people, and he should have made it openly.

But regardless, today's headlines were always going to be horrendous once it was decided that the budget would include a cut to 50p. The notion that Mr Osborne smugly backed his political guile to engineer a favourable reaction is nonsense. He expected a bad press, and got an even worse one.

Mr Osborne's second consolation is that the headlines matter very little. The enduring verdict on a budget takes a while to form. As Paul Goodman notes over at ConservativeHome, the op-ed and analysis pages are a better guide to the real mood, and today these are generally ambivalent. Mr Osborne takes The Times and The Financial Times very seriously. In recent decades they have been less politically and ideologically declared than other newspapers, so their editorial verdicts are often seen as shorthand for respectable, moderate opinion among elites, who tend the set the parameters of political discourse. The Evening Standard is acquiring a similar status. All three papers are tentatively positive about the budget.

Headline hysteria is not the same as centrist opinion. The cap on child benefit has provoked 18 months of screaming rage in parts of the press, but it remains a very popular policy with the public. Similarly, my hunch is that higher taxes on pensioners is gradually becoming a mainstream position, partly thanks to changing attitudes among older people who see their children and grandchildren struggling to match the lifestyles they themselves enjoyed. Think tanks such as the Institute for Fiscal Studies and the Institute for Public Policy Research have been conspicuously open to the idea today. It is the stealthy manner of Mr Osborne's revenue-raiser that was so misjudged, not the policy itself.

But the final consolation is the most soothing. By taking a hit this week, the government does not have to take it again. The top tax rate will probably not be revisited in this Parliament. The agony of paying for it will not emerge again. And there is a reasonable prospect that the next few budgets will take place against a slightly kinder economic backdrop, especially if (and it is the biggest "if" in global affairs at the moment) the eurozone crisis eases.

Of course, there will be other challenges: stemming the fiscal drag of many more Britons into the 40p tax band, for example, and paying for the next hike in the tax threshold. But the uniquely thorny tax changes of 2012 are now done. More to the point, they will slowly become problematic for the opposition. Labour will be asked, increasingly insistently, whether it would reintroduce a 50p tax band or undo the freezing on pensioner tax allowances. Indeed, this is true of any and every fiscal policy that Labour currently oppose. They are not required to have an answer now, but they will be in 2015.

If Labour does not pledge to reverse these policies, they will not be election issues. If they do, the party will be vulnerable to various attacks. A 50p tax will diminish the meagre business support that Labour currently enjoys. Meanwhile, an uprating of the allowance for pensioners will be presented by the Tories as requiring a tax rise or spending cut elsewhere. The advantage a government has over an opposition in controlling the fiscal argument at an election is absolutely colossal, as both Mr Osborne and Ed Balls, the shadow chancellor, understand.

This is why Mr Osborne is relaxed about going into the next election on a platform of even more cuts. Whatever the government's fiscal plan is at any election, it is treated as the "baseline". Any proposed deviation from it by the opposition is subjected to scrutiny that is very difficult to withstand. A Labour opposition proposing more spending than a Tory government's baseline is accused of planning tax rises to pay for it. A Tory opposition offering lower taxes than a Labour government's baseline is suspected of planning spending cuts to pay for them. In every election bar one in the past two decades, veering from the baseline has been electorally ruinous for the opposition. The exception was 1997, when Gordon Brown elegantly avoided the trap by simply accepting Ken Clarke's baseline.

Finally, a word about the big picture. It is true, as his friends and critics attest, that Mr Osborne sometimes treats politics as a game of chess. But it is one of those three-tiered chess boards. The lower tier is tactics, the art of winning day-by-day scuffles. The middle tier is strategy, which is planning for the next election. The top tier is grand strategy. This is where politicians use policy to make the country more amenable to their party in the long-term. Mr Brown did it by extending tax credits far up the income scale, so even middle-class people had a stake in the welfare state, and expanding the public sector payroll. (I am not suggesting that partisanship was the main reason for doing these things, but it was part of the broader calculation.)

Be in no doubt that Mr Osborne resembles Mr Brown in this regard. James Forsyth at the Spectator is one of the few journalists who has written about this. The public-sector labour force is contracting. Tax credits are being withdrawn from some households. The end of national pay bargaining could render trade unions redundant in their current form. And yesterday, Mr Osborne abolished the hallowed principle of universal child benefit. The post-war rationale for making this payment universal was to bind the well-off into the welfare state. It is now gone, and is far likelier to be cut further than to ever come back. This will have implications for attitudes to redistribution long after Mr Osborne has left the political stage. To be sure, he did not do it simply to make this country more Tory-friendly; he is a chancellor with a mission to save money. But neither will he be unaware of that potential side-effect. In the coming years, keep your eyes on the top tier of the chessboard.

Readers' comments

I'm not particularly enarmoued of the logic that taking an unpopular stand is bad for your opposition on the grounds that the minority in support will object so strenously from a divergence from a 'baseline'. I don't recall the Tories running on following in Brown's footsteps in the last election.

Also... odd that a tax bracket that was supposedly not bringing any additional money needs to be paid for by somebody else. While pensioners may be accepting of greater taxes and fees, it'll be difficult to justify to them why it is paying for the tax cuts of someone better off.

The three tiered chessboard is a great model for understanding the actions of very political politicians. A little cynical perhaps. Presumably there are often conflicts between a politician's principles and optimal moves on the chessboard....but the most political will think of the chessboard.

Gordon Brown had to accept the baseline because the economy was doing well, and the main reason Labour won was Tory fatigue, they just tried to show they would change as little as possible so they couldn't be accused of screwing up.

George Osborne was able to run against the baseline because the economy was still in rough waters and the deficit was at alarming levels. However his gamble to cut harder and faster has to pay off - we have to have seen a significant fall in unemployment and a good run of growth by 2015, and the deficit needs to start closing more convincingly, if Ed Balls is to really need to accept Osborne's baseline.

And Ed Balls is more Brown than Brown was, so that's never going to happen anyway.

Ed Balls is increasingly disappointing - not so much an 'attack dog' as one of those yappy dogs that irritate without performing any function. Surely one could make some sensible case against the budget even if one thinks (as I do) that it is fairly reasonable? Balls tends to make one think that he would actually have done much the same but just feels he should yap for his party!

That's an interesting thought about the effect of cutting child benefit for the higher paid. I never understood why the government bothered paying benefits to people who're paying tax, other than in this case to administer a bit of a kicking to the well-off and childless. But cutting it does sort of separate the people into Us and Them, doesn't it?